Section 194A of the Income Tax Act
Income-tax Act, 2025: s.393
Section 194A of the Income-tax Act, 1961 corresponds to section 393 (Tax to be deducted at source) of the Income-tax Act, 2025.
Read section 393 of the 2025 Act
Correspondence checked against the ICAI tabular mapping of the two Acts and the BharatTax.co section commentary.
The decision most relied on for Section 194A is CIT v. Bokaro Steel Ltd. (236 ITR 315), cited in 370 of the 1,500 judgments on BharatTax that turn on this section.
Leading authorities on Section 194A
Interest earned during the pre-commencement period of a project, on advances made to contractors or on unutilized borrowed funds, if inextricably linked to the setting up of the plant, constitutes a capital receipt. Such interest is not taxable as income but can be reduced from the capital work-in-progress.
The second proviso to Section 40(a)(ia), introduced by the Finance Act, 2012, is curative and applies retrospectively from April 1, 2005. Consequently, if the recipient of a payment has filed their return and paid taxes on the amount from which tax was not deducted at source, the payer's expenditure cannot be disallowed under Section 40(a)(ia).
The law declared by the Supreme Court is binding on all courts in India, and decisions of a High Court are binding on subordinate courts and tribunals within its jurisdiction but not on courts or tribunals outside its jurisdiction.
A deductor cannot be treated as an assessee in default for failure to deduct tax at source if the recipient has already paid the income tax directly. The onus is on the deductor to prove that the recipient has paid the tax.
Section 40(a)(ia) disallowance applies only to expenses that remain payable at the end of the financial year, not to expenses that have been actually paid during the previous year without deduction of tax at source.
An expenditure is classified as either capital or revenue; the 'enduring benefit' test is a key criterion for this distinction, and income tax law does not generally recognize deferred revenue expenditure unless specifically provided.
The Calcutta High Court held that a lump sum revenue expenditure, which is of a significant amount and provides benefits spread over several years, can be allowed as a deduction proportionately over the period of benefit. This approach prevents distortion of the profits of a single assessment year.
Section 43B of the Income-tax Act does not apply to disallow an amount (such as statutory dues like service tax or GST) if it has not been debited to the Profit & Loss account and no deduction for it has been claimed by the assessee.
When no specific statutory period of limitation exists, proceedings under Section 201(1) and 201(1A) of the Income-tax Act, particularly for payments to non-residents, must be initiated within a reasonable period of four years. This limitation also applies to consequential penalty proceedings under Section 271C.
Interest paid by banks is allowable as a deduction in computing total income. The decision distinguished the Supreme Court's ruling in Vijaya Bank regarding the deductibility of such interest.
